New Keynesian versus Old Keynesian Government Spending Multipliers

22 Pages Posted: 9 Mar 2009  

John F. Cogan

Stanford University - The Hoover Institution on War, Revolution and Peace; National Bureau of Economic Research (NBER)

Tobias J. Cwik

Board of Governors of the Federal Reserve System

John B. Taylor

Stanford University; National Bureau of Economic Research (NBER)

Volker Wieland

University of Frankfurt

Multiple version iconThere are 3 versions of this paper

Date Written: February 2009

Abstract

Renewed interest in fiscal policy has increased the use of quantitative models to evaluate policy. Because of modelling uncertainty, it is essential that policy evaluations be robust to alternative assumptions. We find that models currently being used in practice to evaluate fiscal policy stimulus proposals are not robust. Government spending multipliers in an alternative empirically-estimated and widely-cited new Keynesian model are much smaller than in these old Keynesian models; the estimated stimulus is extremely small with GDP and employment effects only one-sixth as large and with private sector employment impacts likely to be even smaller.

Keywords: fiscal multiplier, new Keynesian model, fiscal stimulus, government spending, macroeconomic modeling

Suggested Citation

Cogan, John F. and Cwik, Tobias J. and Taylor, John B. and Wieland, Volker, New Keynesian versus Old Keynesian Government Spending Multipliers (February 2009). Rock Center for Corporate Governance at Stanford University Working Paper No. 47; ECB Working Paper No. No. 1090. Available at SSRN: https://ssrn.com/abstract=1356152

John F. Cogan (Contact Author)

National Bureau of Economic Research (NBER)

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Stanford University - The Hoover Institution on War, Revolution and Peace ( email )

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(650) 723-2585 (Phone)

Tobias J. Cwik

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue
Washington, DC 20551
United States

HOME PAGE: http://www.federalreserve.gov/econresdata/tobias-cwik.htm

John B. Taylor

Stanford University ( email )

Stanford, CA 94305
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Volker Wieland

University of Frankfurt ( email )

House of Finance
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Frankfurt am Main, D-60323
Germany
+49 69 798 33805 (Phone)
+49 69 798 33907 (Fax)

HOME PAGE: http://www.volkerwieland.com

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